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Capital expenditure, commonly known as CapEx, refers to the funds a company invests in acquiring, upgrading, or maintaining long-term physical assets that are expected to provide benefits for more than one accounting period. The assets can include:

• Property, buildings, and land
• Equipment and machinery
• Vehicles
• Computers and technology infrastructure
• Furniture and fixtures
• Research and development expenses
• Intellectual property (patents, copyrights)

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CapEx is recorded on a company’s balance sheet under assets, often as property, plant, and equipment (PP&E), rather than being expensed on the income statement. As these assets are used over time, they are depreciated to reflect their declining value.

The primary purpose of capital expenditures is to:

• Expand business operations
• Improve operational efficiency
• Stay competitive in the market
• Generate future economic benefits

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‍CapEx is distinct from operating expenses (OpEx), which are the day-to-day costs required to run a business. The key difference is the duration of the benefit: CapEx investments are expected to provide value for multiple years, while OpEx covers shorter-term, recurring expenses. 

Capital expenditures significantly impact cash flow and long-term financial performance. Effective management of CapEx is crucial for a company’s growth and sustainability.